Income Tax Appellate Tribunal - Pune
Deputy Commissioner Of Income-Tax,, vs Sulzer India Ltd.,, Pune on 25 September, 2018
आयकर अपील
य अ धकरण "ए" यायपीठ पण
ु े म ।
IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH, PUNE
ी डी. क णाकरा राव,लेखा सद य, एवं ी वकास अव थी, या"यक सद य के सम#
BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM
आयकर अपील सं. / ITA No. 722/PUN/2016
"नधा&रण वष& / Assessment Year : 2010-11
The Deputy Commissioner of Income Tax,
Circle-6, Pune.
.......अपीलाथ / Appellant
बनाम / V/s.
Sulzer India Ltd.
Sulzer House, Baner Road,
Aundh, Pune-411 007
PAN : AAACS7876D
......
यथ / Respondent
Revenue by : Shri S.K. Jadhav
Assessee by : Shri Ronak G. Doshi
सन
ु वाई क तार ख / Date of Hearing : 19.09.2018
घोषणा क तार ख / Date of Pronouncement : 25.09.2018
आदे श / ORDER
PER D. KARUNAKARA RAO, AM :
This is the appeal filed by Revenue against the order of CIT(Appeals)- 4, Pune, dated 19.01.2016 for the Assessment year 2010-11.
2. The grounds raised by the Revenue read as under:
"1. Whether on facts and in the circumstances of the case and in law, the Ld. CIT(A) is correct in deleting the disallowance made by the AO on account of Provision of warranty and After Sales Cost.2 ITA No.722 /PUN/2016
A.Y.2010-11
2. For this and such other reasons as may be urged at the time of hearing, the order of Ld. CIT(A) may be vacated and that of the Assessing Officer be restored.
3. The appellant craves leave to add, amend, alter or delete any of the above grounds of appeal during the course of appellate proceedings before the Hon'ble Tribunal."
From the above, it is evident that the issue raised before us for adjudication is whether the Provision of warranty and After Sales Cost constitute an allowable deduction or not.
3. Briefly stated relevant facts include that the assessee is engaged in the business of manufacture and sale of petroleum refining and distillation equipment and filed return of income on 09.10.2010 declaring total income at Rs.36,35,46,570/- after deducting sum of Rs.3,95,09,000/- as allowable deduction on account of "provision of After Sales Cost" and another sum of Rs.1,53,30,352/- on account of "provision of Warranty expenses". During scrutiny assessment proceedings, the assessee submitted before the Assessing Officer that the said calculation was done based on scientific valuation of expenditure. As a matter of normal business expediency, the assessee-company needs to provide for the expenditure on warranty or after sales services ranging from 1 year to 18 months on the products sold by it. Assessee also stated that as per the provision of warranty, the same is in the range of ± 20% of the actual. The Assessing Officer did not accept the submissions of the assessee by holding as under:
"The contention is not acceptable on following grounds. No obligation was ever cast on the date of the sale and consequently there was no accrued liability. The liability had not crystallized on the date of the sale and, therefore, appellant is not entitled to deduction in respect of the provision made for warranty charges. The amount which is provided for or kept apart cannot be held to be expenditure, actually incurred and consequently deduction is not admissible. Hence, merely because the assessee is maintaining its account on mercantile basis, it cannot claim that the provision made towards warranty is an accrued liability.3 ITA No.722 /PUN/2016
A.Y.2010-11 A reference is invited to Indian Molasses Co. (P.) Ltd. Vs. CIT (SC) 37 ITR 66, wherein it was held that expenditure, is, what is paid out or away and is something which is gone irretrievable. The assessee has not paid out the money but simply made the provision and debited it to P & L A/c., which cannot be termed as payment within the meaning to section 37 of the I.T.Act. Section 37 of the 1961 Act does not refer to "making of provision" it only refers to "deduction permissible on account of actual expenditure incurred". Further, the assessee has not given any scientific method of calculation to arrive at such liability. It is thus clear that the provision for warranty debited is contingent liability. The same is not allowable and amount of Rs.1,53,30,352/- and Rs.3,95,09,000/- added back to the total income. Penalty proceedings u/s. 271 (1)(c) is initiated separately."
4. Aggrieved with the order of Assessing Officer, Assessee filed appeal before the CIT(A). During First Appellate proceedings, apart from giving the calculation on the basis of internal evaluation, the assessee relied heavily on the Judgment of the Hon'ble Supreme Court of India in the case of Rotork Controls India Ltd. reported as 314 ITR 62 wherein it was held that "the present value of a contingent liability, like warranty expense, if properly ascertained and discounted on actuarial basis, can be an item of deduction u/s.37 of the I.T.Act." He also referred to the ratio laid down by the Hon'ble Apex Court in the case of Indian Molasses Co.(P.) Ltd. Vs. CIT (SC) reported as 37 ITR 66 in favour of the Revenue. The CIT(A) extracted the written submissions of the assessee, extracted the operative paragraphs from the Hon'ble Apex Court judgment in the case of Rotork Controls India ltd. (supra.), tabulated data relating to the matter of deciding this issue in the assessee's own case since assessment year 1998-99 onwards in Para 4 of his order and granted relief to the assessee. The CIT(A) also relied on the decisions of the Tribunals as well as judgments of Hon'ble Jurisdictional High Court in assessee's own case etc. and held as under :
"5. I have carefully considered the submissions of the appellant in the light of the factual matrix of the case and the legal position on the subject. On the issue of provisions for warranty and provision for After Sales Cost, I am of the view that in sum and substances, they are one and the same. In this regard, I also place reliance on the judgment rendered by the Hon'ble ITAT "E" Bench, Mumbai in ITA Nos. 3677 & 8219/MUM/2004, wherein, it has been held that 4 ITA No.722 /PUN/2016 A.Y.2010-11 "5. We have considered the rival submission and perused the material available on record. We find that the contention of the Assessing Officer that the assessee company can debit the expenditure relating to the sales warranty directly to the P & L account is not acceptable when the assessee is estimating the warranty liabilityes on the basis of some scientific method and the same system is following since several years. The Assessing Officer is not justified to add the provisions made during the year under dispute. It is further observed that the assessee is crediting excess provision to the profit and loss account as and when the provisions are existed than the required. Under these circumstances, we find no infirmity in the order of the Ld.CIT(A) which is in accordance with the various Tribunal decisions. This ground of the Revenue therefore, fails."
In this regard, I also place reliance on the judgment rendered by the Hon'ble Supreme Court in the case of Rotork Controls India Ltd.(supra.), wherein it has been held that a liability determined on a scientific basis cannot be regarded as a contingent liability and the provision made for warranty in respect of goods should be allowed u/s. 37(1) of the Act. Respectfully, following the decisions of Hon'ble ITAT "E" Bench, Mumbai in ITA Nos. 3677 & 8219/Mum/2004, Hon'ble Supreme Court in the case of Rotork Controls India Limited and the Apex Court in the case of Indian Molasses Co. (P.) Ltd., I have no hesitation in deleting the disallowance made by the AO on account of provision for warranty of Rs.1,53,30,352/- and After Sales Cost of Rs.3,95,09,000/-. Hence, ground No.1 stands adjudicated."
5. Aggrieved with the relief granted by the CIT(A) to assessee, the Revenue is in appeal before us with the grounds extracted above.
6. Before us, the Ld. DR for the Revenue heavily relied on the order of Assessing Officer and submitted that Assessee has not furnished proper calculation and details of the expenditure incurred on account of said provisions i.e. provision of warranty and After Sales Cost.
7. On the other hand, the Ld. Counsel for the assessee described the manner in which the Assessing Officer made addition without considering the submissions of the assessee in right perspective. Relying heavily on the order of CIT(A), Ld. Counsel submitted that, on similar facts, the claim of the assessee was allowed in previous assessment years in assessee's own case. He cited the list of cases in which relief was granted by the Tribunal 5 ITA No.722 /PUN/2016 A.Y.2010-11 and the Hon'ble High Court relying heavily on the data tabulated in CIT(A)'s order in Para 4 ( Page-7). He also relied on the Apex Court judgment in the case of Rotork Controls India Ltd. (supra.). He further submitted that upto 80% of the actual provision was finally utilized in the next to next year (12 to 18 months of the warranty period.)
8. We have heard both the parties on this limited issue of allowability of provision of warranty and After Sales Costs. This issue is perennially being raised by the Revenue since assessment year 1998-99 onwards. The details of the same are extracted as under:
A.Y. ITA No./ Relevant Releva Remarks
CIT(A) No. Para nt Pg.
No./Pg. No. of PB
of the
order
1998-99 2790/M/03 Para No appeal filed by
5/Page the Department
No.2 against the said
1999-00 5047/M/04 Para 2/ disallowance
Page No.1 before the Hon'ble
Bombay High
2000-01 3677/M/04 Para Court.
21/Page
No.6
2001-02 8219/M/04 Para
36/Page
No.10
2002-03 N.A N.A Allowed by AO in
Assessment.
2003-04 2871/M/07 Para 11/ No appeal filed by
Page No.4 Department
2004-05 6135/M/07 Para against the said
12/Page disallowance
No.11 before the Hon'ble
2005-06 3366/M/10 Para Bombay High
14/Page Court.
No.13
2006-07 4435/M/11 Para 2/
page No.2
2007-08 6740/M/11 Para 3/
Page No.2
2008-09 IT- Para 1.2/ No appeal filed
205/2011- Page 4 before the Hon'ble
12 ITAT by the
6
ITA No.722 /PUN/2016
A.Y.2010-11
2009-10 U/s. 143 (3) Paper Book Department
of the IT 111 against the relief
Act. granted by the
Hon'ble CIT(A)/AO.
From the table extracted above, it is evident that the claim of the assessee in principle is allowed by the Hon'ble Jurisdictional High Court in assessee's own case in many assessment years i.e. 1998-99 to 2009-10. It is also evident from the above table that the Assessing Officer himself allowed claimed of the assessee in assessment year 2002-03 and 2009-10. In same assessment year, the Department accepted the said decision of the Tribunal and never filed appeal before the Hon'ble Bombay High Court. As such, decision of CIT (A) is, in principle, as per judgment laid down by the Hon'ble Apex Court in the case of Rotork Controls India Ltd. (supra.). It is a settled legal principle that in any case where estimation is done based on scientific method and calculated properly, the provision made for warranty in respect of goods should be allowed u/s. 37 (1) of the Act. Therefore, we are of the opinion that the order of the CIT(A) is fair and reasonable and the same does not require any interference. Accordingly, grounds raised by the Revenue are dismissed.
9. In the result, appeal of the Revenue is dismissed.
Order pronounced on this 25th day of September, 2018.
Sd/- Sd/- ( वकास अव थी /VIKAS AWASTHY) (डी. क णाकरा राव/D. KARUNAKARA RAO) या यक सद य/JUDICIAL MEMBER लेखा सद य/ACCOUNTANT MEMBER
पुणे / Pune; !दनांक / Dated : 25th September, 2018.
SB 7 ITA No.722 /PUN/2016 A.Y.2010-11 आदे श क* +"त-ल प अ.े षत / Copy of the Order forwarded to :
1. अपीलाथ / The Appellant.
2. यथ / The Respondent.
3. The CIT (Appeals)-4, Pune
4. The Pr. CIT-3, Pune.
5. %वभागीय त न(ध, आयकर अपील य अ(धकरण, "ए" ब,च, पण ु े / DR, ITAT, "A" Bench, Pune.
6. गाड/ फ़ाइल / Guard File.
// True Copy // आदे शानस ु ार / BY ORDER, नजी स(चव /Private Secretary आयकर अपील य अ(धकरण, पण ु े / ITAT, Pune.